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Slide 3-
Internal controls are a system of checks and balances designed to
prevent and detect fraud and errors. Both of these actions are
required under SOX.
Companies find that internal control review is a costly process. One
study estimates the cost for U.S. companies at over $35 billion,
with audit fees doubling in the first year of compliance.
The enhanced internal control standards apply only to large public
companies listed on U.S. exchanges. There is continuing debate over
whether foreign issuers should have to comply.
Slide 3-
Most companies use accrual-basis accounting
recognize revenue when it is earned and
expenses in the period incurred,
without regard to the time of receipt or payment of cash.
Under the strict cash basis, companies
record revenue only when they receive cash, and
record expenses only when they disperse cash.
Cash basis financial statements are not in conformity with IFRS.
LO 8 Differentiate the cash basis of accounting
from the accrual basis of accounting.
Slide 3-
Illustration: Quality Contractor signs an agreement to construct a
garage for $22,000. In January, Quality begins construction, incurs
costs of $18,000 on credit, and by the end of January delivers a
finished garage to the buyer. In February, Quality collects $22,
cash from the customer. In March, Quality pays the $18,000 due the
creditors.
Illustration 3A-
LO 8 Differentiate the cash basis of accounting
from the accrual basis of accounting.
Slide 3-
Conversion From Cash Basis To Accrual Basis
Illustration: Dr. Diane Windsor, like many small business owners,
keeps her accounting records on a cash basis. In the year 2010, Dr.
Windsor received $300,000 from her patients and paid $170,000 for
operating expenses, resulting in an excess of cash receipts over
disbursements of $130,000 ($300,000 - $170,000). At January 1 and
December 31, 2010, she has accounts receivable, unearned service
revenue, accrued liabilities, and prepaid expenses as shown in
Illustration 3A-5.
Illustration 3A-
LO 8 Differentiate the cash basis of accounting
from the accrual basis of accounting.
Slide 3-
Conversion From Cash Basis To Accrual Basis
Illustration: Calculate operating expenses on an accrual basis.
Illustration 3A-
Illustration 3A-
LO 8 Differentiate the cash basis of accounting
from the accrual basis of accounting.
Slide 3-
Conversion From Cash Basis To Accrual Basis
Illustration 3A-
LO 8 Differentiate the cash basis of accounting
from the accrual basis of accounting.
Slide
3-97 LO 9^ Identifying adjusting entries that may be reversed.
Illustration of Reversing Entries — Accruals
Illustration 3B-
Slide
3-98 LO 9^ Identifying adjusting entries that may be reversed.
Illustration of Reversing Entries — Deferrals
Illustration 3B-
Slide
3-100 LO 10 Prepare a 10-column worksheet.
A company prepares a worksheet either on
columnar paper or
within an electronic spreadsheet.
A company uses the worksheet to adjust
account balances and
to prepare financial statements.
Slide
3-101 LO 10 Prepare a 10-column worksheet.
A company prepares a worksheet either on
columnar paper or
within an electronic spreadsheet.
Worksheet Columns
Slide 3-
The Worksheet:
Provides information needed for preparation of the
financial statements.
Sorts data into appropriate columns, which facilitates
the preparation of the statements.
LO 10 Prepare a 10-column worksheet.
Preparing Financial Statements from a Worksheet
Slide 3-
Illustration 3-
LO 10
Slide 3-
Illustration 3-
LO 10
